Buying Vs. Renting

The dream of home ownership isn’t just a ‘dream’ but it actually makes financial sense! If you’re looking to establish financial stability and increase your personal or family wealth, investing in a home and getting a mortgage can help you accomplish your personal goals. Yes all of this is true even after the “Real Estate Crash” in 2008 to 2011 as building equity in a home does make sense to all of us.

Let’s look at an example. If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.

Available Programs
With the extensive variety of programs to help buyers obtain a mortgage with little to even zero down payments, the very same money could have been used towards home ownership. Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment – including property taxes and insurance – of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax deduction benefit on the mortgage interest is applied.

Buying Benefits
And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage would be reduced to $279,000, adding $21,000 to your net worth. Home appreciation can add an even bigger chunk. If your home appreciates at a modest 5% per year, the value of a $300,000 home would increase to $383,000 after 5-years. Subtract the remaining mortgage of $279,000 and you have a $104,000 of additional net worth! Even if the appreciation level were at 3.5% or half the historical norm, the result would be $77,000 of additional net worth. In most areas of Phoenix in 2013 as we are seeing double digit appreciation. A more conservative view for 2014 and 2015 Phoenix home appreciations is anticipated to be in 6% to 9% range so 2014 is definitely the time to purchase that new home while interest rates are below 5%. With the Feds mitigating it support of interest rates we could easily see the rates in the 5 1/2% to 6% by the end of 2014 or going into 2015.

But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.

Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the effect a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.

Just like other markets, the housing market has its ups and downs but the general trend is UP!

If you’re ready to take that next step in your financial success ladder to control your housing costs and build equity then don’t hesitate to contact me as I and my loan consultant can and will find a program for you.

Now here is the easy part give me a call to discuss a home purchase and I will put you in direct contact with one of my preferred loan professionals.